Fixing the House Transportation Bill

After catching flack from both fiscal conservatives and the transit lobby, House Speaker John Boehner has postponed consideration of a surface transportation bill. Fiscal conservatives (including my fellow Cato scholar Michael Tanner) objected to the bill's deficit spending; transit interests (including Republicans from New York and Chicago), objected to the bill's lack of dedicated funds to public transit.

Here are a few things you need to know about the transportation bill before it comes up again in a couple of weeks. First, the legislation now in effect, which passed in 2005, mandated spending at fixed levels even if gasoline taxes (the source of most federal surface transportation funds) failed to cover that spending. Gas taxes first fell short in 2007 and the program has been running a deficit ever since. Although the 2005 bill expired in 2009, Congress routinely extends such legislation until it passes a replacement bill.

Unlike the 2005 law, the controversial House bill only authorized, but did not mandate, deficit spending. Actual deficit spending would be considered on a year-by-year basis by the House and Senate appropriations committees. Should they decide not to deficit spend, passage of the House bill could potentially save taxpayers more than $60 billion over the next five years. Failure to pass a bill will only lead Congress to continue to deficit spend.

Second, transportation is big-time pork. The House Transportation and Infrastructure Committee is the largest committee in Congressional history because everyone wants a share of that pork. Fiscal conservatives' dreams of devolving federal transportation spending to the states run into the roadblock made up of members of Congress from both parties who don't want to give up the thrill of passing out dollars to their constituents.

The highway bill wasn't always pork. When Congress created the Interstate Highway System in 1956, it directed that gas taxes be distributed to states using formulas based on such factors as each state's population, land area, and road miles. While Congress tinkered with the formulas from time to time, once the formulas were written neither Congress nor the president had much say in how the states spent the money other than it was spent on highways.

That changed in 1982, when Congress began diverting gas taxes to transit--initially about 11 percent, now about 20 percent. The 1982 bill also saw the first earmarks; the 10 earmarks that year exponentially grew to more than 6,000 earmarks in the 2005 reauthorization.

Ron Paul recently defended earmarks, saying "Congress has an obligation to earmark every penny, not to deliver that power to the executive branch. What happens when you don't vote for the earmark it goes into the slush fund, the executive branch spends the money." But the Highway Trust Fund was not a slush fund; because it was distributed to the states by formulas, the executive branch had no say in how it would be spent.

In 1991, however, Congress decided to put billions of dollars of transit's share of gas taxes into "competitive grant" programs. While competitive grants supposedly supported the best projects, in fact they were mainly slush funds distributed on political grounds either through earmarks or by the president.

The biggest competitive grant program is "New Starts," which supports construction of new transit lines. Since the main way cities could get more money from this fund was to build the most expensive rail transit lines they could, New Starts gave cities incentives to replace low-cost buses with high-cost trains.

All over the country today, cities are waiting for Congress to pass a pork-laden transportation bill so they can continue to build ridiculously expensive rail transit lines, at least half of whose costs would be covered by the feds. Portland, Oregon, which spent about $200 million building a 17-mile light-rail line in 1986, now wants to build a 7-mile light-rail line at a cost of $1.5 billion. Honolulu wants to build a 20-mile elevated rail line for $5.1 billion.

Baltimore, whose transit ridership has declined by more than 20 percent since it started building rail transit in 1982, wants to spend $2.2 billion on a 15-mile light-rail line, nearly 80 percent of whose riders are expected to be people who were previously riding much more economical buses. San Jose wants to spend more than $5 billion building a 16-mile extension to the San Francisco BART system even though the project's environmental impact statement says that it will not take enough cars off the road to increase speeds on any highway by even 1 mile per hour.

In 2005, then-Secretary of Transportation Mary Peters attempted to limit such wildly expensive projects by issuing a rule that rail lines could cost no more than $24 per hour that they saved travelers. Congress immediately exempted the San Jose BART line and several other projects from the rule. Planners tinkered with the numbers for other projects so that an amazing number appeared to cost around $23.95 per hour. Of course, after they received funds from the Federal Transit Administration, costs rose and ridership declined.

For example, in 2000 Minneapolis sought federal funds for what was to be an 80-mile commuter-rail line costing $223 million and projected to carry more than 10,500 riders per day in its first year. By 2004, the cost was up to $265 million but the line would only be 40 miles and was projected to carry just 4,000 riders per day. The line actually ended up costing $317 million, half of which was paid for by the feds, and in fact ended up carrying only about 2,200 riders per day in its first full year of operation, and even fewer in its second year.

To keep transit agencies from having to deal with Mary Peters's pesky cost limit, the Obama administration proposed last month to rewrite the rules for New Starts. The new rules replace Peters's $24 per hour limit with such subjective criteria as "livability," "environmental justice," and "multimodal connectivity." In other words, cities can justify and the Secretary of Transportation can award grants for fantastically expensive projects based on just about any reason at all.

The House transportation bill addressed all of these issues. In addition to ending the 2005 bill's mandatory spending, it completely eliminates earmarks and rededicates gas taxes to highways and put them all in formula funds. The deficit spending is almost all for transit, and while the bill still includes a New Starts program, it insists that projects be judged using firm quantitative criteria, not meaningless terms like livability.

Most importantly, the bill provides a path for the devolution that fiscal conservatives want. By taking all of the pork out of the gasoline tax, the bill makes it far more likely that Congress will be willing to devolve the tax to the states in the next go-around in about 2017.

Not surprisingly, the bill raised the ire of not only fiscal conservatives but the powerful transit lobby (which, because contractors can make far more profits building $100-million-per-mile rail lines than $10-million-per-mile highways, is far better funded than the supposedly powerful highway lobby). Transit advocates would prefer to retain transit's 20-percent share of gas taxes than rely on Congress to fund transit out of deficit spending or some hoped-for oil and gas royalties.

As I see it, the bill's authorization (but not mandate) for deficit spending was an attempt to get Democrats to support the elimination of earmarks and other pork. Since that has apparently failed, I would suggest another form of compromise.

First, end deficit spending, which means a bill that authorizes about $190 billion instead of $260 billion over the next five years. Second, distribute the money to the states exclusively through formulas with no earmarks and no competitive grants. Third, assuage transit interests by allowing the states to spend the money on either highways or transit, with no set formula for how much can go for either one.

Finally, encourage the states to spend the money as cost-effectively as possible by building user fees (defined as state or local taxes or fees paid by users that go to the facilities those users use) into the formula for allocating federal funds to the states. I have proposed a formula based 50 percent on user fees, 45 percent on population, and 5 percent on land area. This initially results in states getting about the same federal dollars as they receive today but gives states incentives to cater to users rather than politicians by investing their funds in projects the produce the most user fees. Most important, by taking the pork out of the gas tax, this keeps open the path to devolution in the next reauthorization cycle.